Bank of Korea holds rate at 2.5% to curb debt, but signals possible cut within months

An electronic board at the Korea Exchange headquarters in western Seoul shows the Kospi closing daytime trading at 3,183.23, surpassing the 3,180 threshold as of closing for the first time in nearly four years. (Yonhap)
An electronic board at the Korea Exchange headquarters in western Seoul shows the Kospi closing daytime trading at 3,183.23, surpassing the 3,180 threshold as of closing for the first time in nearly four years. (Yonhap)

Fueled by a rally in the benchmark Kospi, South Korea’s combined stock market capitalization sharply increased, surpassing the 3,000 trillion won ($2.18 trillion) threshold for the first time Thursday.

According to data provided by the bourse operator Korea Exchange, the total market capitalization of stocks listed on the local bourse reached 3,020.8 trillion won as of Thursday’s closing.

By market, the benchmark Kospi accounted for 2,603.7 trillion won, while the secondary bourse Kosdaq and Konex, known as a stepping stone market, stood at 413.9 trillion won and 3.2 trillion won, respectively.

In recent months, the Kospi has experienced a sharp rally, with its market valuation rising by over 600 trillion won from around 1,963 trillion at the end of 2024.

The bullish Kospi closed trading at 3,183.23, up 49.49 points or 1.58 percent from the previous trading day. It surpassed the previous year-high set at 3,133.74 in just a day. It was the first time the Kospi had closed above 3,180 since September 2021.

Foreign investors and institutional investors each net bought shares worth 445.8 billion won and 41.6 billion won on the Kospi, while retail investors dumped 560 billion won.

"While US President Donald Trump continues to exert pressure through tariffs, the market placed more weight on the possibility of a trade deal," analyst Kim Ji-won at KB Securities said.

“The Korean government's policy momentum continues. Expectations for a boost in undervalued stocks have been steadily growing, as measures such as mandatory treasury share cancellations and separate taxation on dividend income are being pushed forward faster than anticipated, aimed at enhancing shareholder value."

The expectation for eased monetary policy also fueled the stock market. Though the Bank of Korea held its base rate steady at 2.5 percent Thursday, the market viewed the central bank remains on track for a rate cut.

“The rate freeze is necessary to temper excessive expectations for a rate cut,” BOK Gov. Rhee Chang-yong said at a press conference held shortly after the rate-setting meeting.

The rate freeze was executed to rein in mounting household debt amid a resurgent property market.

"Housing prices, especially in the Seoul metropolitan area, are rising faster than they did in August last year," Rhee said.

“The policy priority lies in stabilizing market expectations and managing household loans to prevent a rise in housing prices."

Rhee further explained that four out of six members of the Monetary Policy Board, excluding himself, left the door open for a possible rate cut within the next three months, while the other two took a more cautious stance. Rhee’s own suggestion was not disclosed.

Since October, the bank has been alternating between rate cuts and holds, bringing down the policy rate by a cumulative 1 percentage point to support the sluggish economy.

"Rhee explained that while financial stability must be prioritized, at the same time, stimulus policies remain necessary due to the low-growth environment," Ahn Ye-ha, an analyst at Kiwoom Securities, said.

“While the rate cut could be delayed until October as the BOK assesses the impact of the real estate policies, the possibility of a rate cut in August remains high, provided the low-growth trend does not change significantly.”


silverstar@heraldcorp.com